India not in a hurry to sign fta with EU
By Anjan Roy
Another round of negotiations on a trade agreement between India and European Union has come and gone last week. Since 2005 this is happening, once in India and next time in Europe. The talks were resumed in course of the India-EU summit this week in Delhi when the European president Herman Van Rompuy, and European Commissioner, Jose Manuel Barroso, came over. India has concluded free trade agreements with several countries, including Japan, South Korea, ASEAN and Israel. Bilateral free trade arrangements are the flavour of the season ever since the last WTO negotiations failed to reach agreement on the Doha Round.
When the free trade talks started in 2005 at first, EU was none too keen for a free trade pact with India. In fact, initially it was dismissive of the idea. However, since 2008 global melt-down, the tables have turned and now EU is keener than India. The importance of the latter since the global melt-down is changed and Europe is not in too comfortable situation economically. As India remains one of the major economies still growing, it presents a huge and burgeoning market. Europe would like to get more opening in this market with a free trade pact.
It would, however, have been naïve to expect that a free trade pact could be signed between India and EU shortly. There are still major differences which have yet to be resolved. Europe wants India to bring down customs duty on wines and spirits, and India wants EU to ease up visa restrictions for offering services in Europe. IT and software firms’ personnel have not been able to visit and offer services on site in Europe. Unless the visa restrictions are lifted India cannot take full advantage of the market for IT services in Europe. On the other hand, knowing full well what huge market is there for whiskies and wines in India, EU is asking for slashing of the duties on these items. Besides, Europe has demanded lowering of tariffs on European automobiles for accessing the market in India. Automobile imports attract 60% duty in India, which is set at 5% in EU. Slashing automobile import tariff can hit India’s own automobile industry and therefore India is resisting the EU demand for cutting down automobile import tariffs.
If at all, any lowering of tariffs on automobiles is being resisted by foreign companies which have set up base in India. Japanese and Korean automobile makers have manufacturing plants in India and they have a thriving market within the country. Any tariff cut should hurt them. At the same time, some of these companies can gain from a free trade pact as their cars, produced in India, can get freer entry into EU. This in turn would promote Indian exports to EU, some automobile industry sources point out.
As for automobile imports from EU, these should be mostly high value luxury cars. What has been seen already is that some of the up-market models of European cars like BMW and Audi are doing much better in the Indian market than higher models of Japanese or Korean or even US companies. Hence, even if automobile tariffs are cut after any future India-EU FTA, the chances of direct competition between European cars and the lower and middle segments cars produced in India appear somewhat removed.
Meanwhile politicians are at work. Opposition parties have warned the government against unilateral concessions to the European Union without gaining market access. As a matter of fact, it will be difficult for any government to give access without having to show some critical gains. Nor is the government in a hurry to conclude the FTA deal. Already, the FTAs which are in place have had major adverse effect. A pact with Thailand is setting major hurdles for automobile companies which have invested in this country for making engine blocks, against those who import engine blocks from Thailand.
Indeed, a maze of free trade agreements is having unintended impact. This is particularly becoming something like the sphagetti bowl that known trade expert Jagdish Bhagwati had predicted. It is time for India to make a detailed assessment of the free trade pacts already signed and their impact on different industries. New pacts can await such an exercise. (IPA Service)